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The US Consumer Price Index hit the highest level in over a year in March, but inflation pressure remains tame due to the ongoing global economic slowdown.

Key Takeaways

• The CPI rose 0.4% according to the Labor Department, spurred on by the rising cost of gasoline, rent, and food.
• The 0.4% increase was the largest since January 2018.
• The March reading was 0.2% higher than the 0.2% reading in February, and above the expected 0.3% gain.

The CPI rose 0.4% on a monthly basis, and 1.9% annually compared to 1.8% expected. For comparison, the CPI rose 1.5% in February, the smallest gain since September 2016.

Inflation pressure remains tame. Global economic slowdowns and uncertainty over the unresolved trade war and the unfolding Brexit situation are leading factors of lower-than-expected GDP estimates in many countries. US wage growth increasingly moderately even amid tightening labor market conditions.

The Federal Reserve elected last month to suspend interest rates, and the current inflation data supports this decision – interest rates are typically raised only as a safeguard against rising inflation. The Federal Reserve does not anticipate any rate hikes for 2019 after implementing four last year.

CPI

Energy prices rose 3.5% in March compared to just 0.4% in February, with the March rise accounting for 60% of the monthly CPI increase. Gasoline prices, which rose only 1.5% in February, shot up 6.5% in March,. Food prices rose 0.3% after gaining 0.4% in February, and food consumed at home rose 0.4%. Rents rose by 0.3% in March and rose by around the same amount February.

Healthcare costs rose 0.3% after a -0.2% drop in February. Clothing fell by 1.9%, the most since January 1949, after rising two months in a row. Used cars, airline fares, and car insurance all fell. New vehicles rose by 0.4% after dipping -0.2% the month prior.

The Labor Department report stated that “the indexes for shelter, medical care, new vehicles, recreation, education, and tobacco were among those that increased in March, while the indexes for apparel, used cars and trucks, and airline fares all declined.”

US #CPI +0.4% in Mar & core CPI modest +0.1%:
- energy +3.5% w/ #gasoline +6.5% (60% of headline gain)
- shelter surprisingly strong +0.4%
- apparel weak -1.9%
- medic care, new vehicles, recreation, educ up
- used cars & airline fares down
Headline #inflation 1.9% y/y; Core 2% pic.twitter.com/yDwIEGXv6V

— Gregory Daco (@GregDaco) April 10, 2019

Core CPI

The so-called core-CPI, which excludes the volatile components of food and energy, rose by 0.1% in March, the same as in February. Annually, core-CPI rose 2% in March, the smallest gain since February 2018. The annual reading from the month prior was 2.1%.

Excluding the volatile food and energy components, the CPI nudged up 0.1%, matching February’s gain. In the 12 months through March, the core CPI increased 2.0%, the smallest increase since February 2018. The core CPI rose 2.1% year-on-year in February.

Core PCE

The Fed tracks inflation by measuring the core Personal Consumption and Expenditures Index which rose 1.8% in January after a 2% gain in December, hitting the Fed’s 2% inflation target for the first time since 2012 last March.

The Fed, which has a 2% inflation target, tracks a different measure, the core personal consumption expenditures (PCE) price index, for monetary policy. The core PCE price index increased 1.8% on a year-on-year basis in January after a rising 2.0% in December. It hit the Fed’s 2% inflation target in March last year for the first time since April 2012.

February and March PCE data will be available on April 29, with the February data delayed by the 35-day shutdown of the US government which was the longest in history.

The February and March PCE price data will be released on April 29. The February data was delayed by a 35-day partial shutdown of the federal government that ended on Jan. 25.

Market Reaction

Gold prices have risen following the release of the report, with spot gold up 0.18% and trading at $1,305.91/oz, near the session high of $1,306.41/oz which saw a low of $1,301.53/oz. Gold continues to hover over the key line of support at $1,300. June futures are down -0.8% at $1,307.80/oz.